Add-on and value pricing: How do you set your fees?

In this article I consider add-on pricing (as well as more general pricing strategies) and its merits for accountancy practices.

We arrived, hot and sticky, after an 8 hour journey. Our first action was to refresh and quickly change. The grime of the long journey removed we realised how hungry we were. We weren’t thinking about pricing!

There was a grand restaurant attached to the hotel. Too tired to look elsewhere we walked in, scanned the menu and sat down to sate our hunger. On getting the bill we noticed “+ 30% service charge, + 10% local tax”. The flavour left in our mouths no longer tasted as pleasant.

How would you have felt, or was it just me?

The add on was too much!

Perhaps it was because the additional fees (40%) were too high, is that what made it unacceptable? If that’s the case, what level of add on charges are acceptable? 10% is a commonly accepted rate for service charge, yet many people in the UK don’t like it appearing on their bill after a meal. So is 10% too much?

The next morning we headed to the dive centre, to book some dives (we had a few days spare before heading off on a two week expedition living on an boat). As I tried to assess what I thought of the dive centre (isn’t that something you do whenever you meet a potential supplier?), the discussion inevitably turned towards price.

At €45 the price seemed OK for a day on the boat, and I nodded an acceptance. Then came the next bit, plus €2 marine park fees. I fully support the aims of the marine park, and €2 isn’t a lot, but why can’t they just include that into the standard price?

The psychology of add on pricing

I studied pricing for many years in a previous role, and set prices after carefully studying price elasticity for individual stores. Setting prices excites more people than any other subject of marketing, and there are as many views on what is the right answer as people asking the question.

As you think about it, logically, you know adding amounts to the quoted price is about sounding cheaper. That implies that in my examples they were trying to appeal to price sensitive customers.

Why do so many people charge for additional elements to their fees, thereby masking the true price? Because they get more sales, or because they are able to tune the price to client needs?

But there are other responses.

“The reason I chose my supplier is because there was no ambiguity about the fees I would be paying”.

That’s a common statement, and increasing numbers of people make it in our internet driven world. How do you feel about it? If that helps you stand above a market of confusion pricing, where the unstated belief is that fees are kept high by making the pricing opaque, then a clear statement makes sense.

“I agree the fees with my client only after we have discussed what they need and the value of it to them”

Value based pricing makes a lot of sense, potentially for both sides. The debate is about a fair share and perhaps of “growing the cake” rather than wanting a bigger slice of the cake.

But are you adding value, or simply doing standard (compliance) work?

“Our clients choose from a menu of services on the website”

If one accountant charges £120 per month, is that good or bad? What if that’s excluding the price for the cloud accounting package? Does that imply you are looking for price sensitive clients? Does a menu encourage clients into a discussion, where you can detect their real needs, or simply attract price driven companies?

Types of pricing.

There are three common fee setting mechanisms:

Cost plus

Competition

Value

Perhaps the only conclusion is that the way you set your fees depends on the type of market you’re operating in, who you want to attract and the value you put on yourself.

The trouble is for many accountants that’s not true.For many accountants price the way they always have, and that stems from when they were desperate to attract clients, they haven’t really thought about changing their fee structure since. Have you?